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U.S. Regulatory Developments, The Climate Report, Spring 2017

Does the Executive Order Repeal the Clean Power Plan? No. The Executive Order does, however, revoke and rescind several executive orders and other presidential documents issued by the Obama Administration relating to climate change regulation. See Sec. 3 and 5. For example, federal agencies will no longer consider the so-called "social cost of carbon" when promulgating climate change regulations. The social cost of carbon and some of the other withdrawn White House documents were relied upon when the Environmental Protection Agency ("EPA") promulgated the rule (aimed at reducing carbon dioxide emissions from existing power plants) that is known as the "Clean Power Plan." The Executive Order directs agency heads to identify actions "related to or arising from" the withdrawn Presidential papers and to, "as soon as practicable, suspend revise, or rescind" such actions in a manner that is consistent with the Trump Administration's energy policy, as discussed above. See Sec. 3(d). The Executive Order specifically identifies the Clean Power Plan as a rule that must be reconsidered as soon as practicable. See Sec. 4.

What Other Rules are Affected by the Executive Order? In addition to the Clean Power Plan, the Executive Order directs the Secretary of the Interior and EPA to consider amending or withdrawing various rules applicable to coal mining and oil and gas development. See Sec. 6 and 7. Beyond those rules (and agencies) specifically identified, the Executive Order requirements apply to all existing federal regulations, orders, guidance documents, policies, and any other similar agency actions that potentially burden the development or use of domestically produced energy sources. See Sec. 2(a). Examples of existing agency actions that may be affected by the Executive Order are included in Table 1. Follow this link to view the table.

What Happens Next? By September 2017, federal agencies such as EPA must finalize reports outlining how they intended to comply with the Executive Order. See Sec. 2(c)-(e). To the extent agencies plan to comply by revoking or amending existing regulations, most of those actions will be subject to the Administrative Procedure Act, including notice and comment procedures. High-profile regulatory changes are likely to be challenged in court, which could delay effective dates. Reviewing courts might overturn an agency's decision to revise or revoke a rule as a result of the Executive Order if the change is arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with the law. 5 U.S.C. § 706(2)(A); see alsoFCC v. Fox TV Stations, Inc., 556 U.S. 502 (2009).

An agency may be able to comply with the Executive Order by voiding or revising certain guidance documents and policies, actions that may not be subject to the same administrative process or judicial review standards as a rulemaking. In those cases, policy changes could be implemented earlier.

Where changes prompted by the Executive Order affect pending litigation, President Trump directed agencies to coordinate with the Attorney General so that the Department of Justice may seek a stay or other appropriate relief sufficient to allow the necessary administrative processes to move forward. See Sec. 4(d), 7(c). For example, EPA recently asked the United States Court of Appeals for the District of Columbia Circuit ("D.C. Circuit") to hold the Clean Power Plan case in abeyance while the agency reconsiders the rule. See Case No. 15-1363, Doc. No. 1668274 (filed 03/28/2017). Although the court heard oral argument for that case in September of 2016, a decision has not yet been rendered. On April 28, 2017, the D.C. Circuit granted EPA's request in part—ordering that the case be held in abeyance for 60 days. See Case No. 15-1363, Doc. No. 1673071 (filed 04/28/2017). The court also requested supplemental briefing as to whether the rule should be remanded to EPA, and it is possible that the D.C. Circuit will allow the agency to move forward with a new version of the Clean Power Plan before ever issuing a ruling regarding the original rule.

What Should My Company/Facility Be Considering? Energy sector businesses should begin by identifying existing federal regulations or policies that are unduly burdensome. For purposes of the Executive Order, the term "burden" means to "unnecessarily obstruct, delay, curtail, or otherwise impose significant costs on the siting, permitting, production, utilization, transmission, or delivery of energy resources." See Sec. 2(b). The regulated community should consider onerous requirements beyond recent, controversial, or familiar EPA regulations, such as the Clean Power Plan. For example, there may be existing obligations imposed by the Department of Energy, the Federal Energy Regulatory Commission, the Fish and Wildlife Service, or the Mine, Safety and Health Administration, which are also subject to the Executive Order because they unreasonably encumber energy development.

Several of the standards outlined in the Executive Order, such as "unnecessarily constrain economic growth," are not defined and are open to interpretation and input from the public. Energy-related businesses can (and should) begin developing a record demonstrating why certain existing rules are overly burdensome or otherwise inconsistent with the White House's declared energy policy. At the same time, evidence showing how desired changes could, for example, ensure that domestically produced energy is affordable, would help facilitate needed revisions. To promote prompt amendments that survive judicial scrutiny, the regulated community should consider proactively providing information to federal agencies regarding the most burdensome regulations and proposed solutions that are consistent with the Trump Administration's energy policy.

The energy industry should also stay apprised of notices and other announcements concerning implementation of this and similar White House directives. For instance, EPA recently requested public comment regarding regulations that may be appropriate for repeal, replacement, or modification pursuant to a regulatory reform executive order. Although this particular comment solicitation is not specific to regulations affecting the energy production, it is an important opportunity to begin creating a record that will support future actions consistent with the Executive Order.

On April 6, 2017, the California Court of Appeal, in a 2–1 decision, upheld California's sale of greenhouse gas ("GHG") emission allowances in California's cap-and-trade program. In affirming the trial court judgment, the Court of Appeal held that the California Legislature gave broad discretion to the California Air Resources Board ("Board") to sell GHG emissions allowances by auction, and that the revenue generated by the auction sales did not amount to a tax in violation of Proposition 13. This decision preserves a key component of California's cap-and-trade program but leaves open the possibility of a legal challenge to the Legislature's use of auction revenue. A more in-depth analysis of this opinion can be found here.

Background

California's cap-and-trade program requires covered entities to surrender GHG emission allowances or credits to offset their GHG emissions. Allowances may be purchased at public auctions from the Board. In two cases consolidated at the trial level and on appeal, the California Chamber of Commerce and Morning Star Packing Company, along with other entities ("Petitioners"), challenged the legality of the Board's auction sale of GHG emission allowances on the grounds that the auctions were not authorized by statute and were an unconstitutional tax.

Court Ruling

The Court of Appeal first held that the California Legislature conferred on the Board broad discretion to develop a system for distributing allowances that includes use of auctions. The court noted that the Act's directives to the Board are "exceptionally broad and open-ended" and grant the Board authority to design regulations that include "distribution of emissions allowances." The Court of Appeal next held that the GHG emission allowances auction sale is not a tax subject to Proposition 13. Two hallmarks of a tax are that it: (i) is compulsory, and (ii) does not grant any special benefit to the payor. Because the auction system met neither of the twin hallmarks of a tax, the court concluded that it is not a tax. Future Legal Challenge The Petitioners also argued that the state improperly used auction funds to support programs that lacked a connection to the discharge of GHGs by covered entities, as required by law. The Court of Appeal held that this issue is not ripe for decision. None of the petitions at issue sought to invalidate the Legislature's decisions on how to spend auction proceeds; rather, their object was to invalidate the auction sales. The court further stated that the Legislature's expenditure of allotted revenue does not speak to the legality of the collection of that revenue. But the court left open the possibility that "[t]o the extent the proceeds' expenditure may seem inappropriate to some, those who seek to challenge it may do so."